If a married couple (or registered Civil Partners) have assets worth more than the likely Inheritance Tax (“IHT”) threshold on the death of the first of them to die (£285,000 in 2006/7, announced to be increasing to £300,000 from April 6th 2007, then to £312,000 and £325,000 in the following two years – if this Government is still in charge of such matters) it is recommended that they arrange their affairs, if possible, so as to ensure that they do not waste the IHT tax free allowance of the first death. Not doing so can cost their eventual heirs up to £114,000 at current tax rates (increasing to £120,000, £124,800 and £128,000 if the pre-announced increases in the allowance take place).

Few couples can afford to leave a substantial part of the estate to the children, on the death of one parent, but there are ways of structuring the Will of that parent so that the surviving parent can have use of the monies if necessary, whilst protecting the capital for the children in the longer term. These opportunities also "ring fence" part of the couple's assets from being taken into account if the survivor is ever subject to means testing eg if long term Nursing Care is required.

Opportunities for protection of capital from IHT or means testing are lost by couples who have all assets in their joint names when one dies.

Other opportunities to save IHT are available to all (ie not just couples): gifts can be made during a person's lifetime, with allowances for small gifts to any number of individuals, gifts on marriage and £3,000 annual gifts. However, the use of the exemption for normal expenditure out of income is often overlooked and those who have surplus income could investigate how they can take advantage of this: either directly (eg helping with payment of school fees) or by investment in insurances or bonds which would pay out directly to the heirs, free of tax on the investor's death.

Lifetime re-arrangement of assets or a change in the nature of the investments might be appropriate: there are very many good quality secure investment packages on the market and it may be possible to obtain a better return and to ensure that any future increase in capital value will not become subject to IHT on death.

For further advice please contact Mr Clive Preston at Griffiths Preston, Aldbury House, Dower Mews, 108 High Street, Berkhamsted HP4 2BL Tel: 01442 870277
Email: clive@g-paccounts.co.uk
Website: http://www.griffithspreston.co.uk/Herts/